Kansas closes in on the Constitutional abyss
Kansas became the latest state to engage in the most recent ugly trend in the liquor world, introducing laws under the auspices of regulating the liquor market, yet failing to consider the constitutionality of these laws.
Similar to Tennessee, Kansas introduced legislation to license out-of-state fulfillment houses.
A fulfillment house provides a service to a winery who direct ships wine to consumers. Mainly, the fulfillment house stores wine and packs it and gets a package ready to put on a UPS or FedEx truck.
The fulfillment house gets paid for these services by the winery, not by the consumer in Kansas. A fulfillment house does not sell products to Kansas residents, and if it is not located in Kansas, the fulfillment house does not perform services in the state.
Under the Constitution to become subject to state regulatory jurisdiction, a business must be “doing business” in a state. Many U.S Supreme Court decisions were decided on this issue, and the U.S. Supreme Court was very clear on this constitutional standard.
The “doing business” provision protects a business from becoming subject to regulatory jurisdiction, when it is not performing activity in the state.
If it wasn’t for the “doing business” provision, a state could bring a business into a legal proceeding, no matter how tangential a businesses’ connection is to the state. The “doing business” provision acts as a check on government regulatory power and ensures there is no government overreach.
Even though an out-of-state fulfillment does not perform any activities that would constitute doing business in Kansas, the state legislature still intends to license fulfillment houses. Under what legal theory? I don’t know.
Although the legislation in principle is pretty bad, that is just the tip of the iceberg! Sadly, even though this legislation is probably unconstitutional, it passed the House 122-2 and the Senate 30-8. The residents of Kansas should be terrified that their legislature did not consider and probably didn’t know whether the bill passes constitutional muster! The citizens of the great state of Kansas must be asking whether the legislators are actually reading the bills they pass!
Second, under the proposed legislation, an out-of-state license holder “shall be deemed to have appointed the secretary of state as the resident agent and representative of the licensee to accept service of process from the secretary of revenue, the director and the courts of this state concerning enforcement of this section”.
Pretty scary to think Kansas is advancing legislation where the government will act on a private company’s behalf. A government takeover of a private company’s responsibility never ends well.
Kansas politicians probably justify the fulfillment house licensing scheme on the premise that they believe many unlicensed wine shipments originate from fulfillment houses. How significant this problem is not clear, and whether it is a widespread and rampant problem, I haven’t seen the hard data to back this up yet.
So the Kansas legislature is proposing to mandate an unconstitutional fix to a problem whose seriousness we are not 100% sure of.
But this raises a more important question, is increasing the police state by violating Constitutional norms, the standard we want to set in a Constitutional republic! If we start with this trend in Kansas, what will come next?
When I discussed this issue with a fulfillment house client, he did not know any other state which requires a license for out-of-state fulfillment houses. Mainly, because these businesses are not involved in the business of selling alcohol and the state has no constitutional basis for licensing them.
Kansas is setting itself up to become a bad trendsetter.
In the movie the Wizard of Oz, Dorothy said to Toto, “Toto, I’ve got a feeling we’re not in Kansas anymore.” With legislation aimed at increasing the police state at the expense of the Constitution, many residents of Kansas will feel the same way as poor Dorothy did at that moment.